QUESTION 13

It is easy for individuals to trade in the corporate bond market because:

the corporate bond market is considered to be very transparent.

prices in the corporate bond market tend to be more stable.

centralized reporting of deals between buyers and sellers take place.

None of the above statements is true

QUESTION 16

Which one of the following statements is true of a bonds yield to maturity?

		The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond.
		It is the annual yield that the investor earns if the bond is held to maturity, and all the coupon and principal payments are made as promised.
		A bond's yield to maturity changes daily as interest rates increase or decrease.
		All of the above are true.

4 points

QUESTION 17

Which of the following statements is true?

		Long-term bonds have lower price volatility than short-term bonds of similar risk.
		As interest rates decline, the prices of bonds rise; and as interest rates rise, the prices of bonds decline.
		All other things being equal, short-term bonds are riskier than long-term bonds.
		Interest rate risk decreases as maturity increases.

4 points

QUESTION 18

Which of the following statements is true?

		The longer the maturity of a security, the greater its interest rate risk.
		If investors believe inflation will be subsiding in the future, the prevailing yield will be upward sloping.
		The real rate of interest varies with the business cycle, with the lowest rates seen at the end of a period of business expansion and the highest at the bottom of a recession.
		The interest rate risk premium always adds a downward bias to the slope of the yield curve.

4 points

QUESTION 19

Downward-slopping yield curves are observed

		when the economy is growing.
		when the economy is stagnant.
		before the beginning of a recession.
		None of the above.

4 points

QUESTION 20

Which of the following statements is true about secondary markets?

		In secondary markets, outstanding shares of stock are bought and sold among investors
		Most secondary market transactions directly affect the capital of the firm that issues the securities
		An active secondary market causes firms to sell their new debt or equity issues at a higher transaction cost of funds
		All of the above statements are true

4 points

QUESTION 21

In comparison to the NYSE,

		NASDAQ has less company listed
		total share volume is lower on the NASDAQ
		firms listed on the NASDAQ tend to be smaller
		NASDAQ firms exceed NYSE listed firms in total capitalization

4 points

QUESTION 22

Applying the valuation procedure to common stocks is more difficult than applying it to bonds because:

		the size and timing of the dividend cash flows are less certain than the coupon payments for bonds
		common stocks have no final maturity date
		unlike the rate of return, or yield, on bonds, the rate of return on common stock is not directly observable
		All of the above are true

4 points

QUESTION 23

Assume that you are considering the purchase of a stock which will pay dividends of $4.50 during the next year. Further assume that you will be able to sell the stock for $85.00 one year from today and that your required rate of return is 15 percent. How much would you be willing to pay for the stock today? (Round off to the nearest $0.01)

		$89.50
		$65.37
		$94.10
		$77.83

4 points

QUESTION 24

Which of the following statements is NOT true about constant-growth stocks?

		Cash dividend remains constant over time
		Mature companies with a history of stable growth show this pattern
		Dividends grow at a constant rate from one period to the next forever
		Far distant-dividends have a very small present value and add little to the stocks price